I attended and spoke at an interesting event yesterday, hosted by BACFI and the Commerce and Industry Group. Sharon Bowles MEP spoke of her concern that the way outside advisers (lawyers and accountants) marketed and provided their services were part of a matrix of factors contributing to ethical decline in finance. She’s tried to get some law introduced at the EU level to inhibit what she calls aggressive regulatory arbitrage.
David Kershaw and I have set out in our piece on Lehman Brothers some reasons for our anxiety and I have developed some related themes in my Precarious Professionalism piece. That anxiety was underlined by a piece in the FT recently alleging a US firm had been pressured by Lehman into changing its legal advice to support unlawfully inhibited disclosure. The recent events at GM (see also here) are a reminder that ethical issues around lawyers are not confined to banks (or newspapers). It was against that backdrop that I note (h/t Bryon Fong) with interest the following passage in a speech by Kara Stein an SEC Commissioner to a compliance conference where she talks about the gatekeeping role of many professionals associated with, or working within corporations:
But one gatekeeper that often is absent from the list of cases I see every week are the lawyers. Lawyers often serve as trusted advisers, and they give advice on almost every corporate transaction. They prepare and review disclosures that investors rely upon – disclosures that are at the core of the Commission’s regulatory program. And in most cases, they do a good job. But when lawyers provide bad advice or effectively assist in a fraud, sometimes their involvement is used as a shield against liability for both themselves, and for others.
Are we treating lawyers differently from other gatekeepers, such as accountants? I think we should carefully review the role that lawyers play in our markets, with a view towards how they can better help deter misconduct and prevent fraud.
One way lawyers are treated differently in this country is privilege. The accountants lost the battle to gain it through the Supreme Court. They will now take up that battle more subtly in the context of ABSs. Interestingly, a new book by Tanina Rostain and Mitt Regan alleges that giving accountants something akin to professional privilege in the US accelerated the abusive (and unlawful) tax work.
The US has a stronger history of scrutinising and investigating lawyers than the UK does. Are they moving towards ratcheting up that scrutiny or is Ms Stein flying her own kite? Might regulators here take a similarly heightened interest? Whether the lawyers duties are framed as a failure to competently promote the proper (long term) interests of the Company or as a failure to properly uphold the rule of law and the proper administration of justice (as per the Solicitors Code of Conduct), there appears to be a growing recognition that ethics is not just the client’s problem.